JD Logistics announced 1Q24 results, and both revenue and net profit exceeded expectations.
The number of integrated supply chain customers resumed positive year-on-year growth, which is expected to accelerate revenue growth.
Reiterates the “Buy” rating and DCF target price of HK$13.20.
Strong performance in 1Q24 lays a solid foundation for achieving full-year guidance: JD Logistics announced 1Q24 results, with revenue growth of 14.7% year over year, mainly driven by JD US (JD US) /Debon Shares (603056 CH, uncovered) business revenue growth of 14.9%/25.5% year over year, respectively. Thanks to a year-on-year increase in gross profit margin of 320 basis points to 7.7% in 1Q24, JD Logistics recorded its first profit for the first quarter. The adjusted net profit margin changed from -1.9% in 1Q23 to 1.3%. The management maintained its 2024 full-year performance guidelines (high-single-digit revenue growth, adjusted net profit margin of 1.7% - 2.0% without minority shareholders' equity). We believe that the good start of 1Q24 has laid a solid foundation for JD Logistics to achieve its annual goals.
The external integrated supply chain business is gradually recovering, and revenue growth from related parties is even better. According to customer classification, 1Q24's revenue from JD Group increased 14.9% year-on-year, partly because JD Logistics adopted measures such as lowering the free delivery threshold. However, revenue from external integrated supply chain customers increased by only 5.3% year-on-year, mainly due to customer restructuring (that is, JD Logistics voluntarily abandons low-profit customers to focus on higher quality customers). As the number of integrated supply chain customers resumed year-on-year growth in 1Q24, we believe that the customer restructuring has been largely completed, and we expect revenue from external integrated supply chain customers to accelerate. In addition, management said that in terms of time-sensitive express delivery business, JD Logistics's price competitiveness and high-quality service have also helped the company obtain orders from high-end customers.
A healthy profit margin trend is driving high profit growth. We believe that the increase in gross profit margin of 320 basis points was the main highlight of JD Logistics's 1Q24 performance. In terms of operating cost components, due to JD Logistics's continuous investment in human resources and facility automation, 1Q24 staff and depreciation costs increased as a percentage of revenue, while outsourcing costs (mainly transportation costs), rent, and other operating costs (including fuel costs, etc.) all declined due to economies of scale. Management said this trend should continue, and management believes that the reduction in outsourcing costs, rent and other operating costs will be enough to offset the increase in staff and depreciation costs, thereby driving the gross profit margin to expand further.
Reiterates the “Buy” rating and DCF target price of HK$13.20. Due to the strong performance of JD Logistics in 1Q24 and based on the company's strong profit growth prospects, we expect the company's stock price to be supported at the current level (corresponding to 22 times the 2024 P/E). Our target price of HK$13.20 is based on the DCF model (sustainable growth rate: 2%; WACC: 11.7%).
Risk warning: The macroeconomy continues to weaken; the concentration of related party customers is high; the growth rate of the integrated supply chain business after restructuring is slower than expected.